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SIFMA Annual Meeting: Bair comments on the good and bad of Dodd-Frank

This post is by SmartBrief Finance Editor Sean McMahon, who is reporting live from the annual meeting for the Securities Industry and Financial Markets Association today in New York. For more coverage of the meeting, follow @SBFinance on Twitter and sign up for SIFMA SmartBrief.

Federal Deposit Insurance Corp. Chairman Sheila Bair on Monday weighed in with her analysis of the Dodd-Frank Act, saying the establishment of the resolution authority will be one to the key benefits of the bill. Had regulators possessed such an authority ahead of the financial crisis, Bair believes the collapse of Lehman Bothers would have been a more orderly and less damaging event.

Bair says Dodd-Frank could have been improved if a pre-funded reserve – funded by fees on financial institutions – would have been established to provide liquidity support for the resolution process. Instead, Dodd-Frank calls for a line of credit to be established to allow for borrowing.

Bair also would have preferred to see the Financial Stability Oversight Council set up as an independent entity, rather than as a part of the Federal Reserve. Such a structure would have allowed the FSOC to avoid political influences and focus solely on systemic risk, without clouding its mission with the goals of participating regulators, Bair explained.

Bair shared her view on other issues facing the financial services industry and her experiences during her time at the FDIC:

  • Bank closures: Bair lamented the record number of bank closures the country has seen this year, but repeated her belief that this year will be the peak.
  • On regulatory standards related to capital: Bair admitted that while it is impossible to get regulation exactly right, healthy capital standards are often the best way build in room for error. “We are capital hawks.”
  • On her most difficult days at the FDIC: Late September and early Oct. 2008, Bair said it was particularly difficult operating in that pressure-packed time and having to make decisions based on incomplete or erroneous information. “The bailouts worked, but I hope we never, ever go back to that again.”

Overall, Bair stressed that she sees better days ahead for the banks and the economy. “The banking system is healing. … Banks are repairing their balance sheets which will put them into a better position to lend.”

Image credit: FDIC